A business loan is a way to source the funds needed by the companies for their business. It may be of two types – secured business loans or unsecured loans.
A personal loan is a way to source funds that an individual can use for varied purposes. It is of one type only – unsecured loans.
Before comparing personal loan and business loan, it is first crucial to understand the personal loan and business loan both in isolation.
What are the documents required for business loans and a personal loan?
The documents required for a business loan are as follows:
- Identify proof
- Address proof
- Bank statement copy
- Income tax return copy
- GST registration certificate
- Passport photographs
The documents necessary for a personal loan are:
- An identity proof
- An address proof
- Business proof
- Income proof
What is the loan eligibility criterion for business loan & personal loan?
The business loan eligibility criteria are as follows:
- Companies should have a good credit score.
- The age of the applicant should be at least 18 years and 65 years at maturity.
- The business should be in operation for at least two years.
- The business should be profitable.
The eligibility for a personal loan are as follows:
- The credit score of the individual should be equal to or more than 750.
- The applicant should be self-employed.
- The age of the individual should be at least 21 years.
- The individual should meet the income criteria of the financial lender.
- The individual should be salaried for at least 2 years.
Which is the right between a business loan vs a personal loan for a business?
Below are the parameters to choose amongst a business loan and a personal loan for business:
1. Credit Score:
It is the most important factor in getting a personal loan and it should be 750 or more. Whereas in business loan, the credit score is not the only deciding factor.
2. Interest Rate:
The business loan interest rate is not fixed as in the case of a personal loan.
3. Loan amount:
An individual can avail of a loan of up to Rs. 50 lakhs under a personal loan. Whereas an individual can avail an unsecured business loan up to 7.5 lacs, from Ziploan.
4. Disbursal Time:
Once the individual submits the required documents, the personal loan is disbursed in a few days. Whereas business loans from Ziploan are been disbursed within 3 working days*.
5. Repayment Tenure:
The loan repayment tenure ranges from 1 to 6 years in personal loan. While in a small business loan, the business loan repayment period is anywhere between 24 to 36 months.
Companies can use the business loan only for business-related expenses. Whereas an individual can use a personal loan either for personal use or business use.
To summarize the article, the applicant first needs to analyze the purpose of taking a personal or business loan. Later, check and compare the above-stated features of both the loans and choose the one best suited for them. When the funds required are more and when the company is looking for expansion plans, one should always opt for a business loan. It should not be taken without any requirement, else, the loan turns out to be a burden or a liability, while missing paying its EMIs will badly impact the credit score and will negatively affect in non-eligibility for future loans even when the applicant will have a genuine need of it.
Frequently Asked Questions:
1: What is MSME loan?
MSME loans are the financial help required by Micro, Small and Medium Enterprises.
2: What is the MSME loan interest rate?
MSME loan interest rate is the rate payable monthly by the MSME upon sanctioning of the MSME loan.
3: How to get MSME loan?
MSME loans being an online business loan, one may apply on the online website of the financial lender.
4: Is an SME loan the same as MSME loan?